A mixture of programs, most of which are listed in the first post. Milkshape3D for editing, creating ragdoll, decompiling and compiling models. GCFScape to extract the original HL:S models from the game files for comparison. Photoshop, Paint Shop Pro or GIMP to edit, resize, normal map and batch convert textures. Lastly a few good tutorials to tell you how to code Source files to make all the above work correctly.

um, what do I use to make vmts and how the hell do vmts work (since apparently they are why my new textures aren't working)

In the "C:\Valve\Steam\SteamApps\username\sourcesdk\bin" folder there is a program called "vtex.exe". You can get the basics of it here. You can use it or Cannonfodder's Studiocompiler. Either way, as you have mentioned, the .vmt file tells the Source engine how to handle the .vtf file it represents. I have not found any really good guide on all the different commands yet, though I would be interested in one myself. Most of what I know I have picked up from Romka and by examining other working vmt's and comparing differences.